Calif. hospitals collect duplicate payments for spinal surgeries

California hospitals got paid twice, to the tune of $67.5 million in 2010, for spinal surgeries performed on workers’ compensation patients. That's according to a new study from the California Workers' Compensation Institute.

These unusual duplicate payments – which only apply to spinal surgeries – stem from the way that the state workers' compensation program reimburses health care providers for care.

Typically, hospitals are paid 120 percent for medical services given to injured workers, compared with what they receive for Medicare patients.

But spinal surgeries in workers' comp cases trigger additional payments. Often referred to as “pass-through” payments, hospitals are reimbursed again for the hardware or devices implanted during spinal surgery.

Yet the cost of these instruments is actually already factored into the initial reimbursement, the study said.

The report estimates that the duplicate payments for spinal instruments add $20,000 to the cost of each procedure. The analysis was based on 3,350 surgeries.

Critics say the dual payments are driving up costs for employers and taxpayers.

Hospitals are “getting a double payment and nowhere else (in the workers' compensation program) is this done,” said Sen. Ted Lieu, D-Torrance, who introduced a state bill that would eliminate the pass-through payment. “The loophole has unfortunately led to a cottage industry where you have some hospitals that do a huge proportion of workers’ compensation spinal injury surgeries, and they take advantage of the double payment.”

Employers and their insurers foot the medical bills – including the pass-through payments – for injured workers. For public employers like state and local governments, that cost is ultimately paid by the taxpayers. Based on the number of public employees in California, Lachlan Taylor, the acting executive officer of the state Commission on Health & Safety and Workers' Compensation, estimated that these payments result in $11.4 million in additional costs to taxpayers.

According to data from the Office of Statewide Health Planning and Development, there were 5,193 injured workers who had surgeries that qualified for a pass-through payment in 2010. Pacific Hospital of Long Beach and Tri-City Regional Medical Center in Hawaiian Gardens performed the highest number of these surgeries that year, or nearly 1,000 of these procedures in total. Both hospitals were the subject of a Wall Street Journal article about alleged exploitation of the pass-through reimbursement.

A representative of the California Hospital Association said the organization does not comment on the activities of specific hospitals, but added that pass-through payments are necessary to ensure that injured employees have access to the complicated and costly back surgeries.

“California Hospital Association’s concern is that the Medicare population is different from the workers' compensation population … and payments are based on a population of elderly and disabled patients,” said Amber Ott, the vice president of finance for the California Hospital Association, which opposes the legislation eliminating the pass-through. “The clinical approach is different than if it were a young person trying to re-enter the workforce. You are trying to achieve full mobility versus comfort.”

Originally the pass-through payments were intended to ensure that hospitals would treat injured workers who needed expensive spinal procedures. But the new analysis by the California Workers' Compensation Institute shows that “it is clear that the system of reimbursement for spinal implants under the current workers’ compensation … does allow for cost inflation beyond the reasonable level associated with cost recovery that was intended by the state regulations.”

The recently released research was conducted at the request of the state Senate Committee on Labor and Industrial Relations.

Previous analyses by the RAND Corporation have concluded that pass-through payments should be discontinued. In 2009, the research organization estimated that the workers’ compensation system could save between $23 million and $60 million if the spinal pass-through reimbursement were eliminated.

The state Department of Industrial Relations, which oversees workers’ compensation, has proposed to substantially reduce pass-through payments.

“There is no economic incentive to choose cost-effective devices and in fact, there is an incentive to do more hardware-based procedures,” Taylor of the state Commission on Health & Safety and Workers' Compensation.

The California Hospital Association, however, said that the additional reimbursements for hardware and medical devices are necessary if these procedures are to remain feasible for hospitals.

“These procedures put a significant number of hospitals in the red,” the California Hospital Association’s Ott said. “If the goal is to get people back into a working environment sooner and if our hospitals stop doing these types of procedures (due to cost), the wait time for these injured workers to get these procedures performed is going to be a lot longer.”

Correction: A previous version of this story named the wrong hospital that was one of the two that performed the most spinal surgeries qualifying for a pass-through payment in California in 2010.